'Tamil Nadu gives more than what it receives': Financial planner reignites debate on fiscal federalism

A post by financial planner D Muthukrishnan on social media platform X has sparked fresh debate on the Centre-state financial relationship, particularly regarding Tamil Nadu’s economic contributions to the Union government.

Muthukrishnan questioned the Centre’s frequent announcements about the financial assistance provided to Tamil Nadu while seemingly ignoring the revenue the state generates for the Union government. He argued that in a federal structure, financial exchanges should be seen as reciprocal rather than one-sided assistance.

"Be it agriculture or finance minister, they list out how much they are giving Tamil Nadu. But there should be a sense of fairness. They should equally list out how much they are receiving from Tamil Nadu. Not only Tamil Nadu, all developed states give more than what they receive," he wrote.

Muthukrishnan’s remarks reflect a larger ongoing debate on fiscal federalism in India, where economically stronger states often contribute more to the Centre in taxes than they receive in allocations and grants. Tamil Nadu, being one of India’s most industrialised and high-revenue-generating states, is among those that contribute significantly more to the national exchequer than they receive in central funds.

The financial expert pointed out that the Centre’s stance often makes it seem like Tamil Nadu is being done a favour, when in reality, the state plays a major role in funding national projects and subsidies that benefit other states as well.

"So, why does the Centre keep pointing out what it is doing for Tamil Nadu? To make the discussion fair and balanced, let the Centre also say how much it is receiving from Tamil Nadu," he added.

Tamil Nadu, along with other developed states such as Maharashtra and Karnataka, has previously voiced concerns over revenue distribution. Experts argue that higher tax-contributing states receive disproportionately lower allocations compared to their contributions, leading to demands for a more transparent and balanced fiscal policy.

Muthukrishnan’s post has reignited discussions on the need for a transparent breakdown of financial transactions between the Centre and states, ensuring that allocations are not framed as unilateral generosity but as part of a structured economic system where states contribute and receive funds accordingly.

Last month, Reuters reported that the government is looking to cut central tax revenues that it shares with states to at least 40% from the current 41%.